Synopsis: Popular deficit reduction proposal would slash Social Security benefits by about $18,000 for seniors with average benefits retiring this year.

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Today's Seniors Could See Social Security Checks Slashed by More Than $18,000 Under Popular New Proposal.

New Study Reveals Effects of "Tweak" - Being Considered by Biden's Debt Group - That Would Devastate Most Vulnerable Seniors.

A popular deficit reduction proposal would slash Social Security benefits by about $18,000 for seniors with average benefits retiring this year, according to a study released today by The Senior Citizens League, one of the nation's largest nonpartisan senior advocacy groups.

All seniors - whether already retired or not - would feel the pinch, and the "small cuts" would add up to thousands of dollars over a 25-year retirement. Although billed as a "mere technical correction," the adjustment in how benefit increases are calculated would further erode the buying power of America's seniors and could devastate those already living on very tight budgets.

A growing number of deficit reduction proposals (including one submitted by the President's fiscal commission) are calling for using a "chained" CPI to calculate annual Cost of Living Adjustments (COLAs). Vice President Joseph Biden's deficit reduction group is also said to be considering it. This CPI attempts to reflect the fact that people may substitute other, cheaper items when prices increase (for example, if the price of oranges goes up, people may start buying more inexpensive fruit such as bananas).

However, there are several unacknowledged problems with this approach. The first is that this spending pattern doesn't necessarily apply as well to seniors. Secondly, the "chained" CPI calculations are very complex, and benefit amounts will be in flux. This discussion also fails to acknowledge a more fundamental problem: the index itself is based on young workers and doesn't reflect seniors' rising costs.

Contrary to the oft-repeated claim that no one over 55 will be affected by Social Security reform, the increasingly popular prospect of using a "chained" CPI would take effect immediately. It would reduce COLAs by about .3 percentage points each year (and possibly much more in high inflation years). Due to compounding, this would cut Social Security benefits by an estimated seven percent over a 25-year retirement, which adds up to $18,634 for a senior with average benefits who retires this year. The cuts are equivalent to more than a year's worth of average rent payments.

Such benefit cuts could devastate the poorest and oldest seniors. COLAs have already been failing to keep up with retirees' costs, causing seniors to lose almost one-third of their buying power since 2000, according to a recent TSCL survey.

Senior spending patterns are different, because they spend a larger percentage of their income on necessities that aren't as conducive to substitution. Furthermore, most seniors live on a "fixed income," relying on Social Security for more than half of that income. When prices increase, sometimes their only option is to buy less or even forego something entirely - even if it's something essential such as cancer-fighting medicines.

The complexity of the "chained" CPI will also cost seniors money and lead to a lot of uncertainty: final index data is released two years after the fact, and the figure that is used to calculate COLAs in the interim is often lower than the final figure.

Proponents of the "chained" CPI point to the fact that most Social Security reform plans that propose it would also increase the Social Security minimum benefit. However, the COLA cuts would take place immediately, whereas the minimum-benefit adjustments in most plans would not begin until 2017 or 2018. With compounding, it is unlikely that such a boost would offset the benefits lost from COLA cuts.

There is also a larger issue that has been lost in these debates: Which index should determine COLAs? Proposals calling for using the "chained" CPI are really calling for using the "chained" version of the CPI-W. The CPI-W is based on younger, urban workers, who don't spend as much of their income on health care as seniors. A better option for calculating COLAs is the CPI for Elderly Consumers (CPI-E). By tying the annual increase in the COLA to the CPI-E, in most years, seniors would see much-needed relief in their monthly checks. For example, a senior who retired with a benefit of $460 in 1984 would have received $13,723 more over the past 27 years with the CPI-E.

"It's outrageous that a change that could put a significant dent in seniors' pocketbooks is being passed off as a minor technical adjustment," said Larry Hyland, chairman of The Senior Citizens League. "Social Security reform is necessary but should be handled fairly and not jeopardize cost of living adjustments. Seniors have already been watching the value of their benefits erode, to the point where millions of them are barely able to scrape by. Annual cost-of-living adjustments are crucial and should represent seniors' true costs."

With 1.2 million supporters, The Senior Citizens League is one of the nation's largest nonpartisan seniors groups. Its mission is to promote and assist members and supporters, to educate and alert senior citizens about their rights and freedoms as U.S. Citizens, and to protect and defend the benefits senior citizens have earned and paid for. The Senior Citizens League is a proud affiliate of The Retired Enlisted Association. Visit www.SeniorsLeague.org or call 1-800-333-8725 for more Information.

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